I’m Buying Microsoft Before July 29 for One Reason

I keep hitting the buy button on Microsoft (NASDAQ:MSFT | MSFT Price Prediction), and I am adding again before the fiscal Q4 report drops after the close on July 29. My horizon is 12 to 36 months. My reason is one sentence: I am locking in more shares of a high-margin enterprise monopoly at a compressed valuation multiple, and the market has handed me the discount.

The stock trades at $381.70, down 20.72% year to date and 24.69% over the past year. The business remained strong. The multiple compressed.

Three Reasons My Conviction Holds

Start with the cloud and AI engine. Last quarter, Azure and other cloud services grew 40%. Microsoft Cloud revenue crossed $54.5 billion in a single quarter, up 29%. The AI business alone crossed a $37 billion annual run rate. Satya Nadella put a number on it: “Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year.”

Then the backlog. Commercial remaining performance obligations reached $627 billion, up 99% year over year. That is signed enterprise demand queued up for future delivery. The pipeline is contracted.

Then the quality of the earnings behind it. Operating margin ran at 45.62%, net margin at 36.15%, and return on equity at 33.28%. Debt to equity sits at 0.176 with interest coverage of 53.89. Forward P/E is 20, trailing 23, on a business compounding revenue 18.3% year over year. That is the compressed multiple I keep pointing to.

Why Not Amazon or Alphabet

The two names a reader would reach for first are Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL). My money keeps going to Microsoft first for one reason I can measure: the $627 billion contracted backlog anchored by Microsoft 365, Dynamics 365, GitHub, LinkedIn, and Copilot sitting on nearly every enterprise desktop already. Azure at 40% growth paired with a 45.62% operating margin is the combination I have not been able to replicate elsewhere.

The Risk I Will Not Wave Away

Capex hit $30.88 billion last quarter, up 84.39% year over year. If AI monetization slows before this infrastructure is depreciated, free cash flow gets squeezed. Reddit is chewing on this openly. One thread put it directly: “MSFT earnings on July 29 and I genuinely can’t tell if the CapEx is the story or the problem.” Fair question. My answer: a $627 billion signed backlog and an AI run rate growing 123% are the enterprise customers writing checks against that capex right now. The risk is real. The thesis does not break unless those two numbers break.

What Keeps the Buy Button Active

Operating cash flow last quarter was $46.68 billion, up 26.01%. Microsoft returned $12.7 billion to shareholders in a single quarter earlier this year through dividends and buybacks. The dividend yields 0.85%, small but funded by one of the strongest cash machines in the market. Analysts carry 54 buy ratings, 3 holds, and zero sells. I buy for the cash flow underneath the price targets, and every quarter Microsoft keeps compounding it, my next lot gets easier to justify.

I am adding this week, and I will keep adding until the multiple stops being kind.

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